In Democratic tax plan, the middle class pays while rich find shelters

Planning to vote in November? Ambivalent about the two parties? Well, if you’re concerned about wealthy individuals moving their money offshore to prevent paying income taxes — and forcing you to pay more  — then you have just one choice: Vote for Republicans. The same goes if you’re concerned about the middle and working classes being burdened by new taxes and deficit spending. Remember, any plan that talks about taxing the rich means that the dollars will come out of your pocket.

Yes, Republicans are the only party whose policies will prevent billions of dollars from being patriated overseas to avoid higher income taxes. Lower tax rates across the board and the elimination of loopholes will keep capital in the country. Democrats are likely to raise taxes on the middle class, but are absolutely clear about jacking up rates on high earners.

{mosads}What’s so wrong with that? Clearly, you’ve never heard of the Laffer Curve. Even putting aside traditional conservative arguments about economic growth and take home pay, one thing is clear: Higher marginal tax rates don’t often result in higher revenues. We see the imbalance even under the current law. The top 3 percent of taxpayers chip in more than the entire bottom half of the population. In fact, just over 1,400 tax filers pay in more than 70 million households combined.

The dependence on top earners eventually will come home to roost. About half of federal revenue comes through income taxes, with the top 10 percent of earners paying in for 70 percent of that total. The top 1 percent pays in more than the bottom 90 percent! In contrast, the bottom half of earners contribute just 3 percent of total income taxes. One of the main causes of the French Revolution was that rich nobles got out of paying taxes while the lower classes paid the largest share. Today in the United States, nearly half of all adults do not pay a cent in income taxes.

The Tax Cuts and Jobs Act tries to thread a difficult needle and does many things right. It made the country far more competitive compared to nations overseas, and it slashed a corporate tax rate that encouraged outsourcing. It reduced inversions that allowed companies to move headquarters overseas. The lower tax rates bring in more revenue than expected, as the federal haul reached a record level earlier this year. Meanwhile, the deficit exploded to $779 billion. It wasn’t due to declining revenues, which are actually up $14 billion, but are instead due to $127 billion in new spending. The surging economy was a major factor in preventing an even worse increase. Even this unacceptably high budget deficit was in fact $80 billion lower than previous estimates.

Who pays for deficit spending? You do! The increased inflationary pressure of public borrowing will cost you more in every gallon of gas, loaf of bread and new loan. Who benefits heavily from budget deficits? Mostly the rich, who can invest in Treasury bonds that you probably won’t! So chart it out with me here: Jacking up income taxes harms the economy, leads to higher interest rates, and does not generate additional revenue. In the long run, the working and middle classes suffer far more from such a regime rather than wealthy people with liquid assets.

Raising the highest income tax bracket without sufficient relief will ensure that the rich will simply send their money to where they can keep the most of it, which is often overseas. George H.W. Bush’s tax hikes harmed the economy. Bill Clinton’s increase of taxes on the rich was offset by a capital gains tax cut. Higher taxes on the wealthy as the George W. Bush’s tax cuts expired fueled the poor economy under Barack Obama.

The Republican tax overhaul provided a major opportunity and big obligation for companies to reduce or eliminate foreign cash stashes. Tax rates were finally low enough that it made economic sense to bring significant capital home. President Trump’s plans targeted overseas wealth and instituted a special tax to convince companies to bring the money back home. The total increase in revenue is $339 billion over the next decade. Just imagine if a similar system was used for top earners.

There’s no doubt higher taxes will lead to increased offshoring of wealth. It’s estimated that Fortune 500 companies hold $2.6 trillion overseas, shorting taxpayers more than $750 billion if it was taxed domestically. Similarly, a paper published by the National Bureau of Economic Research showed that these safe havens increase income inequality. So why would Democrats want to foster more loopholes for the rich?

The Republican tax legislation isn’t perfect and included some compromises with the Washington “swamp” to get passed. However, it has increased revenues, brought back corporate earnings from overseas, disincentivized offshoring of jobs, and boosted our economy. Do you want to watch the boom end and have the wealthy pay less on their Cayman Islands bank accounts? Just vote for Democrats this November.

Kristin Tate is a libertarian writer and author of “How Do I Tax Thee? A Field Guide to the Great American Rip-Off.” Follow her on Twitter @KristinBTate.

Tags Barack Obama Bill Clinton Democrats Donald Trump Finance Republicans

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